Token Incentives and Market Coordination in Klima 2.0

In our previous article, we outlined how Klima 2.0’s tokenomics model transforms user insight into carbon pricing signals through the Autonomous Asset Manager (AAM). 

But insight alone isn’t enough.

The real challenge for any open system is not necessarily how it handles input, but how it gets people to care enough to provide it consistently.

This is where Klima 2.0’s design becomes uniquely powerful. The protocol doesn’t rely on goodwill, ideology, or manual curation. It relies on incentives.

Incentives are the glue that holds Klima 2.0 together.

Why Incentives Matter

Klima 2.0 borrows directly from its Decentralised Finance roots, a space where people contribute to ecosystems when they are economically and ideologically aligned to do so.

This is not a flaw of Web3: it is the feature that makes decentralised systems sustainable, with high-profile and innovative approaches like Ethereum, Olympus, and Aerodrome being stand out examples. 

In Klima 2.0:

• The more a user contributes (through liquidity, informed voting, or long-term alignment),

• the more incentives they earn,

• and the more influence they gain over the pricing and curation of carbon classes.

This is designed to create a self-reinforcing loop.

Long-term aligned users → more accurate pricing → better carbon portfolio → more organic demand → higher-value incentives → more aligned users.

In other words: Incentives don’t just reward participation. They create the market.

They allow the coordination of disparate stakeholders, not typically aligned within the carbon markets; but that can be aligned through Klima. 

Skin in the Game

Incentives are paid in Klima’s native tokens. The same tokens the protocol uses to price, acquire, and retire carbon.These aren’t worthless reward points or secondary emissions with no utility.

They represent real economic value tied directly to the performance of the protocol.

If Klima 2.0 acquires high-quality, high-demand carbon credits:

• the portfolio increases in value

• the pricing mechanism gains legitimacy and adoption

• Incentives – and the governance they represent – become more valuable

If it acquires low-quality, low-demand credits:

• the portfolio weakens

• the pricing signal loses credibility

• incentives fall in value

This dynamic is intentional.

Participants who attempt to manipulate, distort, or misprice carbon classes ultimately harm their own economic interest.

Klima 2.0 channels self-interest toward collective accuracy, a core lesson from DeFi’s most resilient systems. [1]

Aligning Diverse Stakeholders

Carbon markets involve many actors: developers, traders, buyers, liquidity providers, and participants seeking exposure.

Klima 2.0 doesn’t treat these groups as separate silos.

It stitches their incentives together:

• Suppliers want predictable pricing and liquidity.

• Retirees want transparency and quality.

• Market participants want to influence credible outcomes.

• LPs want consistent returns.

The token mechanism is the meeting point where these interests converge.It enables coordination across a fragmented ecosystem. 

The Tokens That Make It Work

There are three key tokens in Klima 2.0. Each plays a distinct role in both governance and economic alignment.

1. kVCM: The “what” (carbon exposure + pricing)

• Represents beneficial ownership of the protocol’s carbon portfolio (can be used to acquire retirements). 

• Expands when the Portfolio Manager acquires carbon

• Contracts when carbon is retired

• Locked kVCM that votes determines which carbon classes receive pricing weight

• Used as the medium of exchange for all protocol trades

2. K2: The “how” (risk + capacity)

• A fixed-supply risk governance token

• Adjusts how aggressively the protocol acquires or retires carbon

• Influences spreads, acquisition rates, and risk parameters across carbon classes

• Locked K2 shapes the boundaries of kVCM’s pricing curve

3. Carbon Tokens: The underlying asset

• On-chain representations of specific carbon credits

• Managed by the Portfolio Manager

• Acquired into the portfolio or retired to issue offset certificates

• Grouped into carbon classes for efficient pricing and targeted voting

The System Architecture

To understand how incentives tie the system together, it helps to look at the three operational layers:

1. Liquidity Markets

LPs deposit assets to enable deep liquidity and low-slippage access for those looking to enter or exit the Protocol’s carbon portfolio.They earn incentives for making the system tradable and frictionless.

2. Portfolio Manager

Executes all carbon acquisition and retirement based on signals from voters.Its behaviour is entirely governed by the rulesets encoded in the protocol.

3. Allocation Engine (AAM + governance)

Voters allocate kVCM and K2 → producing pricing curves → guiding carbon supply → shaping portfolio composition.

These three layers together form a responsive, incentive-driven market mechanism.

Incentives: A Dual Role

All tokens have a dual purpose in the system:

1. They determine outcomes. User allocations shape pricing, risk, and which carbon types the protocol acquires.

2. They attract participants. Incentives reward the very behaviours the protocol depends on: liquidity, informed voting, long-term alignment.

This duality is what makes Klima 2.0 more than a marketplace.

It is a market-creation protocol, one where incentives coordinate participants toward accurate pricing and a healthier carbon ecosystem.

The Long-term Game: Maximum Value Distribution 

Klima has always been fully open-source. Its smart contracts run on Base, allowing any carbon market technology provider to integrate with it, any organisation to audit its data, and any market participant to interact with it.

The protocol was founded on a simple idea: open technology can challenge extractive business models, invite scrutiny, and share the value it creates with its users.

These principles have held true for four years.

What is new in Klima 2.0 is a codified commitment to distribute all value generated by the system back to the ecosystem that sustains it. Through tokens, not fees, and through aligned participation, not intermediated value capture.

The incentive mechanism is what makes this possible. By removing all protocol fees and embedding value distribution directly into the token model, Klima ensures that any value created has a direct, measurable reciprocation. 

In short, Klima 2.0 turns every positive outcome (better carbon, better governance, better demand) into value shared transparently and proportionally with the users who make the system work.

It is a long-term, incentive-aligned model for market creation, designed not to extract value from carbon markets, but to distribute it.

[1] Wong Ellinger, E. et al. (2024). Skin in the Game: The Transformational Potential of Decentralized Autonomous Organizations. MIS Quarterly, Volume 48 (1), pp. 245–272. doi:10.25300/MISQ/2023/17690